The Merged RDEC Scheme: Rates from April 2024
For accounting periods beginning on or after 1 April 2024, the UK operates a single merged R&D scheme. The previous two-track system, which separated the SME scheme from the large-company Research and Development Expenditure Credit, has been replaced by a unified framework that applies to almost all UK companies.
Under the merged scheme, the credit rate is 20% above the line. This means the credit is treated as taxable income, and corporation tax is payable on it. For a profitable company paying corporation tax at 25%, the net benefit after deducting that tax charge is approximately 15p for every £1 of qualifying expenditure. This is the number most finance directors should work with when estimating what a claim could be worth.
The mechanics work as follows. A company with £500,000 in qualifying R&D expenditure generates a 20% credit of £100,000. That credit is taxable at 25%, creating a £25,000 tax charge. The net benefit to the company is therefore £75,000, which is 15% of the original qualifying spend. The credit first offsets any corporation tax liability. Where it exceeds the liability, or where the company is loss-making but does not qualify for ERIS, a portion may be payable as cash subject to a PAYE cap.
| Scheme | Credit Rate | Net Benefit (profitable co.) | Who Qualifies |
|---|---|---|---|
| Merged RDEC | 20% above the line | ~15p per £1 | All UK companies (default) |
| ERIS | 27% above the line | ~27p per £1 (loss-making) | Loss-making, R&D intensity 30%+ |
| Old SME scheme (pre-April 2024) | 130% enhanced deduction | ~21.5p per £1 (profitable) | SMEs, periods before 1 April 2024 |
| Old loss-making SME | Surrender at 10% | ~10p per £1 | Loss-making SMEs, pre-April 2024 |
One important practical point: the merged scheme applies to accounting periods beginning on or after 1 April 2024. A company with a 31 December year end will have its first period under the merged scheme for the year ending 31 December 2025. Claims for the year ending 31 December 2024 may still fall under transitional provisions depending on the specific period start date. Your specialist adviser will confirm which rules apply to each period.
The ERIS Scheme for R&D-Intensive Companies
The Enhanced R&D Intensive Support scheme was created to protect early-stage technology companies that were disproportionately disadvantaged by the shift from the old loss-making SME scheme to the merged RDEC. Under the old rules, a loss-making SME that was burning cash on R&D could receive a payable credit worth up to 33p per £1 of qualifying spend in some periods. The merged scheme's headline net benefit of 15p represented a significant reduction for those companies.
ERIS addresses this by offering a 27% credit rate to qualifying loss-making companies. To qualify, a company must be loss-making and its qualifying R&D expenditure must represent at least 30% of total expenditure for the period.
A company with total costs of £900,000, of which £300,000 is qualifying R&D expenditure, has an R&D intensity of 33.3%. If the company is loss-making, it qualifies for ERIS. The 27% credit on £300,000 is £81,000. For a loss-making company, this can be received as a payable credit subject to PAYE caps.
A company with total costs of £900,000 and £250,000 qualifying R&D expenditure has an intensity of 27.8%. It falls below the 30% threshold and claims under standard merged RDEC at 20%, producing a credit of £50,000 with a net benefit of £37,500 after the tax charge.
The 30% intensity threshold is applied to the accounting period in question. It is not a rolling average. A company that meets the test in one year but not the next will claim under different schemes for different periods. Where R&D intensity is close to the threshold, careful cost analysis can determine whether it is crossed.
ERIS is particularly relevant for pre-revenue software and technology companies, life sciences businesses in clinical development, and any company in a growth phase where investment in R&D is substantially ahead of revenue. If your company is loss-making and spending heavily on technical development, the first question to ask is whether you meet the intensity threshold.
Average Claims by Sector
HMRC publishes annual R&D statistics that break down claims by sector, number of claims, and total value. The most recent data covers 2022 to 2023. The figures below reflect SME claims under the scheme that applied at that time. Under the merged scheme from 2024, absolute values will shift as rates change, but the relative distribution across sectors is broadly stable.
| Sector | Number of Claims | Average Claim Value | Typical Company Profile |
|---|---|---|---|
| Information & Communication | 22,645 | ~£66,000 | SaaS, data platforms, fintech, dev tools |
| Manufacturing | 10,395 | ~£108,000 | Precision engineering, materials, process innovation |
| Professional, Scientific & Technical | 9,325 | ~£78,000 | Engineering consultancies, specialist technical services |
| Construction | 2,870 | ~£55,000 | Novel materials, structural systems, sustainable building |
| Wholesale & Retail Trade | 1,580 | ~£49,000 | Logistics optimisation, warehouse automation |
| Human Health & Social Work | 1,410 | ~£92,000 | Diagnostics, medical devices, digital health |
The ICT sector's average of approximately £66,000 reflects the full spread of claims, from a five-person start-up claiming £15,000 to a 200-person software house claiming £600,000. For companies with 20 or more technical staff engaged in qualifying activities, claims of £100,000 or more are common. The average is pulled down by a large number of smaller claims at the lower end.
Manufacturing claims are higher on average because qualifying expenditure in that sector typically includes consumables (materials used and discarded in the R&D process) and subcontractor costs alongside staff costs, which increases the total qualifying spend per claim.
HMRC classifies claims by the company's primary SIC code, not by the nature of the R&D activity. A construction company that has developed novel building materials appears in the Construction sector, not Manufacturing or Professional Services. If your company operates across categories, your claim is counted in whichever sector matches your primary business activity.
Worked Example: 40-Person Software Company
Consider a software company with 40 employees, based in London, building a data analytics platform for enterprise clients. The company has a 31 March accounting year end and is profitable, paying corporation tax at 25%. Ten developers and a technical lead spend a portion of their time on qualifying R&D activities.
For a company of this size and activity profile, a claim approaching £100,000 is realistic. This is not an exceptional outcome. It reflects the qualifying expenditure at a mid-sized software business where a meaningful proportion of technical staff are engaged in genuine R&D activity.
If this same company had two accounting periods still open under the two-year rule, the total recoverable amount could be approximately £200,000, assuming similar activity levels in both years. For many companies discovering this relief for the first time, two years of retrospective claims represent a substantial recovery.
"The net benefit calculation is straightforward once you have identified qualifying expenditure accurately. For most software businesses, that is the harder part of the work."
What Drives Claim Value
The single largest driver of R&D claim value is qualifying staff costs. Salary, employer National Insurance contributions, and employer pension contributions for staff directly engaged in qualifying R&D activities all count. For most software and engineering businesses, staff costs represent 70 to 85% of total qualifying expenditure.
The percentage of time each staff member spends on qualifying activities is the key variable within staff costs. A developer working entirely on non-qualifying maintenance and feature delivery contributes nothing to the claim. The same developer spending 60% of their time on a qualifying technical project contributes significantly. Companies that track time against projects, even informally, are in a much stronger position to justify higher time allocations to HMRC.
Subcontractor costs add to the total, but under the merged scheme only 65% of payments to subcontractors are claimable, and the subcontractor must be UK-based unless an overseas exception applies. Overseas subcontractor costs are generally excluded from April 2024 onwards, subject to limited exceptions for work that must be done abroad due to geographical, environmental, or social conditions.
Qualifying software licences and cloud computing costs can be included where they are used directly in carrying out the R&D activity, not for general business use. Consumables, where relevant, cover materials used and transformed in the R&D process. Capital expenditure, such as hardware purchases, does not qualify under the main scheme.
Fully loaded staff cost = gross salary plus employer National Insurance plus employer pension contributions. Bonuses directly attributable to the qualifying period can also be included. The R&D percentage is applied to this fully loaded figure, not just the salary line. For a developer earning £65,000, employer NI of approximately £8,700 and a pension contribution of £3,000 brings the fully loaded cost to around £76,700. A 60% R&D allocation on that figure is £46,020, not £39,000 from salary alone.
First-Time Claims vs Ongoing Claims
A company making its first R&D claim faces a different situation from one that has been claiming annually for several years. First-time claimants often have two accounting periods available to claim simultaneously, which can produce a meaningful lump-sum recovery. The preparation work for a first claim is also more intensive because there are no prior year templates, documentation systems, or HMRC relationships to draw on.
Ongoing claimants benefit from established processes and the ability to refine time allocation tracking year on year. They also face scrutiny from HMRC if claim values change materially year on year without an obvious explanation. Consistency and clear documentation of changes are important for companies with an established claiming history.
For first-time claimants, the priority is to identify all open periods before any deadline passes, gather available documentation from those periods, and work with a specialist who can reconstruct time allocations and project narratives from available records. This is routinely achievable even where records were not kept with a claim in mind.
The Old SME Scheme vs the Merged RDEC
Understanding how the scheme change affects your company requires looking at whether you were profitable or loss-making under the old rules, and whether your situation has changed.
| Scenario | Old SME Scheme (pre-April 2024) | Merged RDEC (from April 2024) | Direction of Change |
|---|---|---|---|
| Profitable SME, 25% corp tax | ~21.5p per £1 | ~15p per £1 | Reduction |
| Loss-making SME, not ERIS-eligible | ~18.6p per £1 (at 186% rate) | ~15p per £1 (merged RDEC cash rules) | Broadly similar |
| Loss-making SME, ERIS-eligible (30%+ intensity) | ~18.6p per £1 | ~27p per £1 | Increase |
| Large company (RDEC pre-merger) | ~15p per £1 | ~15p per £1 | No change |
The change that most affected the R&D advisory market was the reduction in the profitable SME rate from approximately 21.5p to 15p per £1. For a company with £500,000 in qualifying expenditure, that represents a reduction in annual benefit from approximately £107,500 to £75,000. It is a material change, but the relief remains significant and worth claiming diligently.
Any company that received specialist advice under the old SME scheme should have had their forecasts updated to reflect the new rates for periods from April 2024. If that conversation has not happened, it is worth asking your adviser to confirm the applicable scheme and rate for each upcoming period.
How to Maximise Your Claim Value
Maximising R&D claim value is primarily about identifying qualifying expenditure accurately and completely, not about claiming costs that do not qualify. An inflated claim is more likely to attract an HMRC enquiry, and the consequences of a compliance check are significantly more disruptive than the benefit of any marginal overclaim.
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1
Identify all qualifying projects
The most common source of undervalued claims is failing to identify all qualifying projects, not undercounting costs on known projects. A structured conversation with technical leads about every development workstream over the claim period often surfaces projects that were not initially considered.
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2
Use fully loaded staff costs
Many first-time claimants include only gross salary. Adding employer National Insurance and employer pension contributions increases the qualifying staff cost figure materially, typically by 15 to 20% on top of salary alone.
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3
Substantiate time allocations
Higher qualifying time percentages produce higher claims, but they need to be supportable. Sprint records, project tracking data, and manager sign-off are all useful. Where allocations are conservative due to weak records, improving time tracking going forward increases future claim values.
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4
Review subcontractor invoices carefully
Under the merged scheme, only 65% of payments to UK subcontractors can be included. Review each subcontractor invoice to confirm what proportion of the work was qualifying R&D activity. Where an invoice covers mixed qualifying and non-qualifying work, only the qualifying proportion is claimable.
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5
Claim in time
The two-year window is the most avoidable source of lost value. Companies that delay establishing a claiming process, or that discover the relief late, can lose significant sums permanently. Building an annual claiming process with defined timelines removes this risk.